Choosing a workplace pension scheme

We know that the breadth of choice available in the pensions market can be daunting when it comes to choosing the right scheme for you and your members.

As an employer, knowing that you have to provide a pension scheme for eligible employees is just the start. What kind of scheme is best? What are the differences, and how are you supposed to choose?

Master Trust or contract-based pensions?

Trust-based pensions have become more popular in recent years. This is mainly due to the rise of Master Trust pensions which give you the benefit of external trustees, without going to the effort of setting up a Trust yourself.

Contract-based schemes are more traditionally popular and are still chosen by huge numbers of employers who don’t want to go down the trust route.

There are fundamental differences between the two which we’ll explain to help you make the right decision.

What is a Master Trust pension scheme?

A Master Trust is a Defined Contribution workplace pension scheme. It’s made up of one legal Trust and a Board of Trustees who look after all the different, unconnected employers who join it.

While the Trustees’ services are used by all employers in the scheme to make it a cost-effective solution, each employer can still retain the flexibility they need to make the right decisions for their employees and their business.

Find out more about our Master Trust

Who should consider a Master Trust?

  • Aimed at mid-to-large employers
  • Suits employers who don’t want to run their own trust based pensions arrangement but like the trust legal structure
  • Suits an employer who already has a trust based pension scheme, wants to wind up that scheme and only run one new scheme going forward.

What is a contract-based pension scheme?

A contract-based scheme is a Defined Contribution pension scheme established under contract law rather than trust law.

Members get an individual personal pension contract, which are grouped together at scheme level for efficient administration. The employer organises the collection of contributions to each individual pension plan through the payroll system.

Standard Life’s main contract-based offering is our Group Flexible Retirement Plan (GFRP).

Find out more about our contract-based pensions

Who should consider a GFRP?

  • Suitable for all shapes and sizes of businesses
  • Great for small businesses as it’s easy to set up online, but also hugely scalable (some of our largest clients have GFRPs)
  • Suits schemes where members are looking for a wider range of investment choice

Comparing Master Trust vs contract-based pensions in more detail

Ownership of the pension scheme

  • Master Trust

    Trustees are the owners of the pension assets. Members still have individual plans but the Trustees are responsible for looking after members’ interests and making sure everyone is treated fairly.The members are beneficiaries of the policy with the scheme trustee being the policy holder.

     

    If an employee leaves your company, they can still stay a member of the Master Trust and will still benefit from the Trustees' oversight.

     

    The scheme trustee has pre selected a scheme default investment solution plus a range of funds that members can self select from. The Trustee proactively monitors this range of funds and, working with their investment advisers, can change this range as required.

  • Contract-based pensions

    There is no scheme trustee. The scheme is established and run by Standard Life with oversight provided by the Independent Governance Committee. The employer has no legal responsibilities under the contract based scheme other than paying the correct contributions on time. Of course employers can take more interest and provide their own oversight but they have no legal or regulatory requirement to do so.

     

    If an employee leaves your company, they'd also usually leave your pension scheme. The individual plan would stay theirs - they just wouldn't be grouped in with the plans for your other members.

     

    Under our contract based scheme, members have access to many more funds. So for members that do want to make some investment decisions themselves there is more choice.

Pension regulation differences

  • Master Trust

    Master Trust pension schemes are subject to DWP Occupational Pensions Scheme regulations and Codes of Practice and Guidance produced by The Pensions Regulator (TPR). TPR is responsible for regulating Master Trust schemes and ensuring they comply with all relevant laws and regulations. TPR’s codes of practice can be found here.

     

    Master Trust schemes must be authorised by TPR. To maintain this authorised status schemes are subject to TPR’s Master Trust supervision regime, details of which can be found here.

  • Contract-based pensions

    Contract-based pension schemes are regulated by the Financial Conduct Authority (FCA).

     

    Schemes are subject to the range of FCA’s regulations, the majority of which are found within Business Standards known as Conduct of Business Sourcebooks, examples can be found here.

Investment choice

  • Master Trust

    All member investment options are approved by the Master Trust Board and they are all Standard Life insured funds.

    At Standard Life there is a range of Lifestyle Profiles and self-select funds, including our flagship ESG default. As well as reviewing investment options themselves, the Trustees also get specialist investment advice from their advisers - Redington.

  • Contract-based pensions

    Contract-based pension schemes tend to offer a wide range of investment options.

    At Standard Life, members usually have access to more than 300 insured funds and Lifestyle Profiles. They are all Standard Life insured funds. And if you choose our GSIPP, your employees will have access to an even wider range of investments in addition to our insured funds.

Default investment option

For both types of schemes our primary default investment option is our Sustainable Multi Asset Universal Strategic Lifestyle Profile, which aims to help people invest for retirement while taking sustainability factors into account.

What next?